REBUILDING RESILIENCE 1H Financial update. September 2011

Transcription

1 REBUILDING RESILIENCE 1H Financial update September 2011

2 Forward Looking Statements Important information All information contained in this presentation should be regarded as preliminary and based on company data available at the time of the presentation. Due care and attention has been used in the preparation of forecast information. However, actual results may vary from their forecasts, and any variation may be materially positive or negative. Forecasts, by their very nature, are subject to uncertainty and contingencies, many of which are outside the control of Íslandsbanki. Íslandsbanki cannot guarantee that the information contained herein is without fault or entirely accurate. The information in this material is based on sources that ÍSB believes to be reliable. Íslandsbanki can however not guarantee that all information is correct. Furthermore, information and opinions may change without notice. ÍSB is under no obligation to make amendments or changes to this publication if errors are found or opinions or information change. Íslandsbanki accepts no responsibility for the accuracy of its sources. Íslandsbanki and its management may make certain statements that constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as anticipates, targets, expects, estimates, intends, plans, goals, believes and other similar expressions or future or conditional verbs such as will, should, would and could. The forward-looking statements made represent Íslandsbanki s current expectations, plans or forecasts of its future results and revenues and beliefs held by the company at the time of publication. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond Íslandsbanki s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. Forward-looking statements speak only as of the date they are made, and Íslandsbanki undertakes no obligation to update any forwardlooking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made. Íslandsbanki does not assume any responsibility or liability for any reliance on any of the information contained herein. Íslandsbanki is the owner of all works of authorship including, but not limited to, all design, text, sound recordings, images and trademarks in this material unless otherwise explicitly stated. The use of Íslandsbanki s material, works or trademarks is forbidden without written consent except were otherwise expressly stated. Furthermore, it is prohibited to publish material made or gathered by ÍSB without written consent. 2

3 Table of Contents By Chapter I. Our Profile II. Highlights - 1H 2011 III. IV. Income Statement Assets & Restructuring V. Liabilities, Liquidity & Capitalisation VI. Icelandic Economy an update 3

4 I. Our Profile

5 Domestic universal bank and global specialist 100+ years of full-service banking and financial services One of Iceland s largest universal banking and financial services groups, est staff; assets of ISK 683 BN ($6.0 BN) 25% - 35% market share across all domestic franchise areas International reach through focus on specialist industry sectors Strong capital base, high liquidity and a quality loan book through comprehensive restructuring in BRANCHES PROVIDE NATIONAL COVERAGE High ranking in customer service and satisfaction Looking to consolidate to a market leading share in 2011 Independent Asset Based Financing unit - ERGO LEADING FUND MANAGER One of Iceland s leading wealth manager by AUM Managed through an independent unit, VÍB providing regulated investment advice Retail Wealth Corporate Markets FULL-SERVICE CORPORATE BANK & INTERNATIONAL SPECIALIST Domestic corporate banking for industries Specialist teams in Iceland and in the US for geothermal energy & seafood LEADING FULL RANGE CAPITAL MARKETS UNIT Equities, fixed income, FX, corporate finance and research Leading trade volume of sovereign bonds 5

6 Strong banking heritage Serving Icelandic industry, households and commerce since 1904 Re-established as Íslandsbanki on 15 October 2008 after the collapse of Glitnir Bank Assumed Glitnir s domestic assets and deposits Conservative valuation of acquired assets and liabilities completed in September 2009 Glitnir was a leading domestic franchise Strong share of domestic deposits Attractive retail and SME loan products International and domestic expertise in fisheries and geothermal lending Íslandsbanki Fisheries Bank of Iceland Industrial Bank of Iceland Iceland Bank of Commerce Union bank Merger of four commercial banks Íslandsbanki Íslandsbanki- FBA ÍSLANDSBANKI HF. New Bank Fisheries Investment Fund Industrial Loan Fund Industrial Development Fund Merger of three government funds FBA The Icelandic Investment Bank Glitnir Bank 6

7 Increased management reporting clarity New, clearer reporting structure improving accountability and transparency Board of Directors Internal Audit Ágúst Hrafnkelsson CEO Birna Einarsdóttir Retail Banking Una Steinsdóttir Corporate Banking Vilhelm M. Thorsteinsson Markets Tryggvi Björn Davídsson Wealth Management Stefán Sigurdsson COO Sigrídur Olgeirsdóttir CRO Sverrir Thorvaldsson CFO TBA Legal Tómas Sigurdsson Human Resources Hafsteinn Bragason Marketing Hólmfrídur Einarsdóttir Corporate Communications Már Másson Compliance Kristinn A. Stefánsson 7

8 II. Highlights - 1H 2011

9 EFFICIENCY PROFIABILITY ASSET BASE RESULT 1H financial highlights Key ratios developing in line with expectations RETURN ON EQUITY TOTAL CAPITAL RATIO 12.9% NET INTEREST MARGIN 4.8% LIQUIDITY STRENGTH 28% TOTAL DEPOSITS / LOAN RATIO 75.2% CORE COST / INCOME RATIO TOTAL ASSETS ISK BN 50.8% 683 9

10 STRATEGY RESTRUCTURING EFFICIENCY GROWTH SERVICE 1H operational highlights Focus on strengthening the foundations and preparing the Bank for future growth Acquisition of credit card issuer Kreditkort Supports new retail credit card strategy Glacier Securities, NY office, granted a broker dealer licence Advisory business in the seafood and geothermal energy sectors Extensive internal and external service surveys conducted Supports work on the Bank s vision - #1 in Service Íslandsbanki licensed to broker off-shore ISK when capital controls are lifted Restructuring continues to be a top priority Growth in FTE s during period to finalise vast majority of the restructuring efforts during 2011 Increased branch network efficiency Merger of two Reykjavík based branches in June 2011 Rebranding of business units in line with strategy ERGO, Íslandsbanki s Asset-based financing unit VÍB, Íslandsbanki s Wealth Management service Promotes increased focus and customer service 10

11 III. Income Statement

12 1H income statement Period from 1 January 30 June ISK million H H Net interest income 16,303 17,438 Net valuation changes on loans (255) (474) Latent impairment (155) (610) Net fee & commission income 3,013 3,332 Net financial expenses (468) (434) Net foreign exchange gain Other net operating income Total operating income 19,430 19,784 Salaries & related expenses (4,969) (4,597) Other operating expenses (4,405) (4,136) Insurance fund (432) (562) Total operating expenses (9,806) (9,295) Profit before tax 9,624 10,539 Income tax (2,067) (2,347) Bank tax (344) 0 Income from discontinued operations Net Profit 8,062 8,290 Net interest margin (total assets) 4.8% 4.9% Return on equity 12.9% 17.3% Core cost / income ratio 50.8% 44.8% Net interest income Bank earns less on the large equity base due to sizeable drop in risk free interest rates YoY Margin on deposits has tightened Net valuation changes Changes in the value of the acquired loan portfolio Comprises future estimated cash flow from loans and collectively and specifically assessed impairment Net fees & commissions Slow recovery of financial markets impacts fee income Subsidiary leaving the group Other net operating income Net gain on real FX imbalance ISK trade weighted index up nearly 6% in 1H Taxes Bank tax comprises, a tax introduced in 2011, calculated as 0.041% of total liabilities, and a special tax to meet costs associated with a special 2-year tax credit for mortgage holders 12

13 1H income split: 97% from core operations Brokerage fees yet to pick up as capital markets remain inactive CORE INCOME 1H 2011 By division OPERATING INCOME SPLIT By category 1,586 NII NFC ISK 16.3 BN ISK 3 BN 15% 3% 8, , , % NII NFC Retail Banking Corporate Banking Wealth Management Treasury Markets Other income Net interest income impacted by lower interest rates Consistent progress in resetting of contractual interest rates Net interest margin expected to be 2.5-3%, on average, going forward Equity and non-government bond markets still dormant Translates to lower than anticipated fee and commission income Capital controls limit revenue growth in FX trading Slight dip in NFC in 1H due to payment processing firm Borgun leaving the group 13

14 Administrative expenses Collective wage agreement increases coming through ADMINISTRATIVE EXPENSES ISK BN, Core cost to income ratio 44.8% 50.8% 4,698 4,408 Salaries and related expenses Number of full time equivalent employees (FTEs) was 980 on average in 1H 2011 as opposed to 933 in 1H 2010 (parent company) Increase in FTEs is mainly in back office due to temporarily increased work load in restructuring the loan book Increase in salary costs stem from a collective wage agreement one-off payment and wage increase effective as of 1 June 2011, as well as rise in National Insurance 4,598 4,968 Other operating expenses Salaries and related expenses Other operating expenses Payment to Depositors and Investors Guarantee Fund lower due to new legislation Core cost / income ratio Administrative expenses / NII+NFC High costs during the restructuring period 1H H

15 IV. Assets & Restructuring

16 Assets Little change despite sale of subsidiary ISK millions Cash and balances with Central Bank 27,761 30,799 Derivatives Bonds and debt instruments 50,456 68,024 Shares and equity instruments 3,240 3,022 Loans to credit institutions 41,627 30,870 Loans to customers 509, ,161 Investment in associates Property and equipment 4,543 5,419 Intangible assets Deferred tax assets Non-current assets held for sale 23,990 23,489 Other assets 19,702 5,544 Total assets 682, ,222 Bonds and debt instruments Mainly government bonds of G-5 countries No exposure to GIPSIs Movement of liquid assets from bonds to loans to financial institutions Loans to credit institutions Increase in MM deposits with foreign banks No exposure to troubled banks Loans to customers Repayments continue to exceed new lending Growth not expected until economy starts to grow Other assets 16.4bn in unsettled securities transactions Total assets Borgun (ISK 11bn) left the Group in 1H Tier 1 ratio 23.8% 22.6% Total capital ratio 28% 26.6% Deposit / loan ratio 75.2% 77.5% Customer deposit/ loan ratio 62.9% 63.5% 16

17 Loan portfolio: well diversified Repayments still exceeding new lending as customers continue to deleverage CONSOLIDATED LOAN PORTFOLIO Book value, by sector CONSOLIDATED LOAN PORTFOLIO Book value, by borrower 2% 1% 2% 4% 6% 8% 8% ISK 551 BN 31% Individuals Real estate Seafood Commerce and services Financial institutions 8% 9% 1% Companies ISK 551 BN 52% Individuals Government secured customer loan 11% 13% 14% Government secured customer loan Industrials Investment companies 31% Financial institutions Sovereign Construction Book and claim value substantially different 38% denominated in FX FX exposure to non-fx income clients actively being reduced Public sector and NPOs Energy Modestly increased exposure to banks Due to management of liquidity portfolio Financial institutions exposure is deposits (MM or Nostro accounts) No exposure to GIPSIs 17

18 Loan portfolio performance Clear objectives have guided consistent progress in restructuring LOAN PORTFOLIO ANALYSIS (LPA*) Excludes loans to credit institutions, that are fully performing 37.2% ISK 507 BN 36.1% 26.6% Non-performing by LPA definition Performing after restructuring Performing w/o restructuring NON-PERFORMING LOANS (NPL**) By status of restructuring 26.6% 13% 0.8% 6.1% 0.3% 13% 6.4% 1.1% In collection Transferred to workout More than 90 days past due / individually impaired Payments postponed TRANSFERRED TO WORKOUT By level of completion 3.9% 8% Initial analysis Offer made In negotiation In documentation LPA report submitted monthly to the FME Exposure is monitored on obligor level not facility level * parent company only **as defined by LPA Vast majority already in workout process Carrying amount reflects expected recovery of these loans No further impairments should therefore be needed The preservation of the business relationship informs the restructuring process at Íslandsbanki Modus operendi: Lower principal [but] at market rates Restructuring to be largely completed by year-end

19 V. Liabilities, Liquidity & Capitalisation

20 Liabilities Deposits decrease as companies and households deleverage ISK millions Financial liabilities 10,582 9,090 Derivatives 1, Deposits from Central Bank and credit institutions 93,849 96,238 Deposits from customers 320, ,158 Debt issued and other borrowings 55,529 55,425 Subordinated loans 22,887 21,241 Current tax liabilities 9,248 9,024 Deferred tax liabilities Non-current liabilities held for sale 6,251 16,442 Other liabilities 32,243 26,694 Total liabilities 553, ,759 Total equity 128, ,463 TOTAL liabilities and equity 682, ,222 Deposits Change in customer deposits largely due to loan pre-payment from a single large customer Debt issued and other borrowings ISK 52bn bond issued to the Central Bank secured on a pool of mortgages Subordinated loans EUR 138m denominated Tier II government bond provided as liquidity and equity support following agreement with creditors in September 2009 Other liabilities Unsettled securities transactions, provisions for FX loans to customers with ISK income, creditors and accruals 20

21 Deposits Stable source of funding with blanket guarantee still in place DEPOSIT DEVELOPMENT Total exposure, ISK BN DEPOSIT BASE By currency - 2% 15% CPI-linked Non CPI-linked FX % 71% Slight contraction in deposits Changes in the insurance scheme have been approved Could result in deposit outflow from holders of non-insured funds Concentration is monitored closely Funding and liquidity management aims at diversifying funding sources Increased focus on term deposits 21

22 Sound management of liquidity Liquid assets far exceeding targets LIQUID ASSETS / DEPOSIT COVERAGE RATIO 30 June, parent company, ISK BN INTERNAL LIQUIDITY RATIOS Development, all currencies Class Asset type ISK FX Total A Cash and balances with CB A Balances with credit institutions A Repo eligible bonds A Foreign government bonds A Government facility line B Depo B Cash collateral A&B Total Total deposits Liquid assets to total deposits 31% 82% 38% 220% 200% 180% 160% 140% 120% 100% 80% Liquidity Ratio A Liquidity Ratio C Liquidity Ratio B Limit Q4 Q1 Q2 Q3 Q4 Q1 Q ISK 160 BN in liquid assets Have remained high for past 3 years Cash or cash-like assets against demand deposits 21% FME requires 5% Liquid assets against all deposits 38% FME requires 20% Íslandsbanki reports in-house on Basel III liquidity ratios 22

23 Imbalances strictly monitored Net foreign currency gap actively improved IMBALANCES 30 June, ISK BN NET FX GAP Development, ISK BN FX Inflation Assets Liabilities (173) 117 Gross gap Adjustment for FX/ISK assets (75) Net gap Q2 Q3 Q4 Q1 Q Foreign currency assets divided based on customer cash flow Real FX assets (FX/FX) amount to ISK 175 BN Exchange rate changes are fully offset in the impairment account in cases were recovery is fixed in ISK (FX/ISK assets) Net FX gap is strictly monitored and within limits Net gap between inflation indexed assets and liabilities Various opportunities for issuing inflation indexed debt in the medium-term to reduce this gap 23

24 Sound capital position Ratios continue to strengthen on back of retained earnings CAPITAL RATIOS Change over past 30 months TOTAL EQUITY CAPITAL Development, ISK BN 28.0% 4.2% 13.1% +107% 23.8% Tier 1 ratio Tier 2 ratio % Strong capitalisation forms opportunity for growth Far above temporarily heightened regulatory requirements of 16% Legal limit for total capital is 8% Íslandsbanki has stated a desire to lead consolidation in the Icelandic financial sector Offer to acquire all outstanding equity in Byr is pending approval of the Competition Authority Equity at H 2H 1H 2H 1H Large equity base starting to weigh down on profitability Low interest rates decrease ability to earn a good return Un-economical as means of funding Íslandsbanki is not permitted to pay dividends for the time being Equity at

25 VI. Icelandic Economy an update

26 Past the low point of an economic cycle Some uncertainty, but economic indicators point to improving conditions Indicators of economic turnaround in 2011 Economic growth was positive in both Q1 and Q Driven by investment and consumption slow growth in exports Recovery will be gradual - Consumption growing on basis of moderate growth in real purchasing power of wages Icelandic real estate shows signs of recovery Real estate prices have dropped by approximately 40% from its highest value, without much change in nominal value Some time will pass before the real estate market stabilizes and further drop in prices is possible However, number of transaction are rising Troubled Euro-countries increase uncertainty Major structural problems yet to be resolved Concern about co-ordination of euro-zone action and level of intervention of the ECB in relation to PIIGS countries, indirectly influencing the Icelandic economy 80% of Icelandic exports to Europe ICELANDIC ECONOMY, Quarterly Economic Growth Corrected for seasonality 6% 4% 2% 0% -2% -4% -6% -8% -10% % 2.0% -0.8% -0.7% REAL ESTATE PRICE INDEX Inflation adjusted INDEX NOMINAL PRICES -5.8% -6.1%-6.3% -6.6% -6.3% -8.4% -2.9% -0.2% 3.6% 1.4% Jan-00 Nov-01 Oct-03 Sep-05 Aug-07 Jul-09 Jun-11 Source Statistics Iceland, National Registry

27 Economy is stabilising Iceland is not suffering a debt crisis Moderate inflation has supported rate cuts Unemployment thought to have peaked Inflation Currently 5%, double the Central Bank s target Temporary drop to 1.8% in Q1 Deteriorated outlook due to weaker ISK, larger wage rises, higher commodity prices and recovering housing market Benchmark interest rates Increase of 25bps brought rate up to 4.5% from historic low Monetary Policy Committee has implied that monetary easing may be at an end CONSUMER PRICE INDEX (CPI) Year on Year % Change 20% 15% 10% 5% 0% Measured inflation CB inflation target Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Unemployment CB expects 7.1% unemployment this year compared with 8.1% last year High historically for Iceland but near OECD average Rise in long-time unemployment is a concern Debt level Sovereign debt high but manageable Iceland is not suffering a debt crisis Principle of IceSave expected to be covered by old Landsbanki s assets ISK CURRENCY INDEX, ISK/EUR RATE Corrected for seasonality INDEX Source Central Bank of Iceland ISK CURRENCY INDEX EUR/ISK ISK/EUR Jun-09 Dec-09 Jun-10 Dec-10 Jun

28 Iceland completes IMF programme Successful conclusion of the stand-by arrangement in August 2011 IMF programme main objectives Exchange rate stability ISK severely devalued following October 2008 collapse Capital controls imposed Fiscal sustainability A sizeable deficit had to be tolerated initially Fiscal austerity measures imposed Resurrect financial system Restructure the collapsed banks Aim at sector wide consolidation and increased efficiency Objectives largely fulfilled Icelandic Krona (ISK) Stable albeit under strict capital controls Depreciated by ~7% during 1H, after strengthening in 2010 Expected to weaken when capital controls are lifted EUR/ISK at end of 1H 2011 from at start of 2011 Budget Central government fiscal deficit just under 3% this year Financial system Resurrection largely completed Restructuring of loan portfolios well underway 28

29 Board of Directors Independent board combining international experience with domestic expertise FRIDRIK SOPHUSSON Chairman of the Board Mr. Sophusson is an Icelandic national, with nearly forty years of wide-ranging experience in fiscal policy making, management and public service in Iceland. Mr. Sophusson was appointed the CEO of The National Power Company, in 1999 and held that position for almost 11 years. Mr. Sophusson served as a Member of Parliament for a period of twenty years from 1978 to 1998, during which time he was appointed as Iceland s Minister of Industry and Energy, , and Minister of Finance, JOHN E. MACK Vice-Chairman A US national, Mr. Mack was Corporate Executive Officer and CFO of Shinsei Bank from He spent 27 years working for Bank of America. Has specific experience in corporate work-outs and problem loans through his former role as director of Strategic Solutions, Inc NEIL GRAEME BROWN A British national, has extensive experience of finance and restructuring of international businesses. Among positions held by Mr. Brown are head of buyouts and financial services at Apax Partners and partner at Coopers & Lybrand (now PwC) DANIEL LEVIN Dr. Daniel Levin is a US and Swiss national, with broad experience of governance, finance and markets. He has advised financial supervisory authorities on the implementation of ethical and corporate governance and has represented corporate and sovereign issuers and borrowers. MARIANNE ØKLAND A Norwegian national, currently holds the position of Managing Director of Avista Partners. Ms. Økland has spent most of her career in banking dealing with debt financing in various positions at JP Morgan and UBS ÁRNI TÓMASSON An Icelandic national, Mr. Tomasson began his work in accounting in 1979 and has worked in bank and financial institution auditing since Mr. Tómasson was appointed chairman of Glitnir s Resolution Committee in October 2008 and has led the committee s work since that time KOLBRUN JONSDOTTIR An Icelandic national, was the managing director of finance for VÍS Insurance from She worked in Íslandsbanki from both as branch manager in the Reykjavik area and head of back office. Prior to that she was the managing director of finance for the home improvement and construction retailer Húsasmidjan 29

30 Current ownership structure Current Resolution Committee owner intends to exit within 5 years Shareholders On 13 Sept 2009 Glitnir, Íslandsbanki and the Icelandic Government agreed on the settlement of assets and liabilities between the old and the new banks A Resolution Committee, on behalf of the creditors of Glitnir, the "old" bank, owns a 95% stake in Íslandsbanki, The Icelandic Government, through Icelandic State Financial Investments retains a 5% stake Glitnir is not intended to be a long-term owner of Íslandsbanki It has been stated publicly that Glitnir intends to sell its stake within the next five years RESOLUTION COMMITTEE GLITNIR BANKI HF. Old Bank GLB HOLDING HF. Holding Company ÍSB HOLDING HF. Holding Company 100% 100% ICELANDIC STATE ICELANDIC STATE FINANCIAL INVESTMENTS Icelandic State 100% 95% 5% ÍSLANDSBANKI HF. New Bank 30

31 Material changes have been made Íslandsbanki is a substantially different bank Focused on core operations and competencies Weaknesses in Glitnir s operations Expansion into highly levered LBO and commercial real estate markets outside Iceland Rapid acquisitive growth outside Iceland Changes Focus on the strengths derived from the acquisition of Glitnir s assets such as domestic banking and seafood and geothermal energy expertise Funding matches operation Lack of diversification in funding Mismatch of maturities Unsustainable size of the banking system Liquidity requirements tightened, both internally and by regulator Developing plan for broad range of funding sources Iceland s banking system reduced to 2x GDP Review and changes to all lending practices Large single name exposures Lack of discipline in definition of related parties Lending against own shares Lending in FX to non-fx income clients Strict controls on loan concentration Stricter rules on related party lending FX-loans only granted to FX income customers Lending against own shares abolished Strengthen corporate governance Corporate controls which turned out to be insufficient to prevent excessive leverage Insufficient attention to long-way risks especially for equity hedged as collateral Highly experienced, mainly independent, Board of Directors to strengthen corporate governance Substantive changes to policies and approval structures to a similar end 31

32 Íslandsbanki